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Saving is at the core the American Dream. It helps provide families with short-term stability when paychecks fall short or an unexpected expense arises. When properly invested and protected, it also creates wealth that enables economic mobility and can leave children better off than their parents. For generations, it’s been promoted and encouraged by government and both political parties.

With that in mind, it seems like the Tax Reform 2.0 legislation released by the House GOP this month should be welcomed as another important step for the federal government to further encourage families to save. It contains several savings proposals, including an expansion of 529 college savings accounts and USAs, “a new Universal Savings Account to offer a fully flexible savings tool for families.”

But the legislation doubles down on the mistakes of Tax Reform 1.0, and the new provisions continue to provide little to no benefits for low- and moderate-income families that need the most help saving. Inversely, wealthy families who need the least help continue to reap the vast majority of the benefits at the expense of working families.

The Tax Code Is Rigged in Favor of the Wealthy

The tax code is one of the primary ways the federal government helps and encourages families to save. Investments in retirement accounts, like 401(k)s and Individual Retirement Accounts (IRAs) are typically allowed to grow or be withdrawn from tax-free. Homeowners are often allowed to deduct mortgage interest from their tax bills. Students can deduct interest on their education loans. When you add all these wealth-building subsidies up, it comes to the tune of over $729 billion annually.

These savings and wealth-building subsidies serve a worthy purpose, but their current structure favors the wrong families. In 2017, millionaires received an average benefit (from all these wealth-building subsidies) of $160,190, while working families only received $226. And families of color are even more likely to lose out because they disproportionately represent lower-income households, which exacerbates a growing racial wealth divide.

The higher your income or savings, the higher the marginal tax rate you pay. When you lower these tax rates or make certain types of savings or investments tax exempt, the families with the most get the biggest benefit. At the same time, lower-income families receive a smaller or possibly no benefit if they do not have any tax liability. These are upside-down tax incentives.

For example, using 2010 data, the Government Accountability Office released a report examining 529 college savings plans. It found that the annual income of almost half of the families using these plans was over $150,000. Furthermore, the more money a family had, the bigger the benefit they received. For families making up to $100,000, the median tax savings was $561. Families making between $100,000 and $150,000 saw a median benefit of $1,958. Earn over $150,000, and the benefit rises to $3,132.

Tax Reform Is Making Inequality Worse

Last year, in a partisan, secretive and rushed process, the Republican-controlled Congress passed a highly regressive and controversial new tax law at a cost of $1.9 trillion over ten years that made the existing overall inequality in the tax code even worse and ballooned federal deficits and debt. Households in the top one percent of income received an average tax cut of $51,140, while those in the bottom 20 percent (earning $25,000 or less) only received $60.

Now, through the Tax Reform 2.0 proposal, the House GOP wants to make these regressive individual tax cuts permanent (currently they expire after 2025) and introduce the new savings proposals that would further skew the $729 billion in wealth-building subsidies in favor of the wealthy.

The USAs proposal is similar to a Roth IRA. It would allow individuals to place $2,500 in after-tax funds into a USA where it would be allowed to grow and be withdrawn without being taxed. But there would be no income limits on participation and the funds could be withdrawn at any time and for any purpose. This would likely not encourage any new savings and provide little or no benefit to most working families, who already don’t take full advantage of existing tax-preferred savings accounts and pay little or no tax on any taxable earnings. It would benefit wealthy families though who would be able to shift savings that are currently taxable into these new tax shelters.

In other words, these accounts would be yet another giveaway for the rich at the expense of the rest of us and future generations.

A Better Way

If Congress is serious about reducing economic inequality and helping families who need the most help to save and build wealth, they should reject the USA proposal and Tax Reform 2.0 overall. Instead, the next Congress should repeal and replace the Tax Cuts and Jobs Act, with its $1.9 trillion price tag, with what we call right-side up tax proposals instead.

One such proposal is the idea of Baby Bonds, or a sizable financial investment by the federal government in every child at birth. One version of Baby Bonds, advanced by William Darity, Jr. of Duke University and Darrick Hamilton of the New School in New York, would give every newborn in the country an investment or seed capital based on the wealth of their family. Children from the lowest wealth families could receive up to $50,000, while those from the highest wealth families would receive a much smaller amount as low as $500. The investment would go into safe and stable assets managed by the federal government that would grow a nominal rate. When the children become adults, they would be able to access these funds for specific asset building purposes, such as higher education, homeownership or entrepreneurship.

These investments would help spur economic mobility and wealth building, particularly for the most vulnerable children, and could be a major force for not only reducing overall economic inequality, but also the massive and growing racial wealth divide. The estimated cost of the Darity and Hamilton proposal would be around $80 billion a year, or $800 billion over ten years, but that is still sizably lower than the $1.9 trillion cost of the Tax Cuts and Jobs Act and doesn’t even include the full cost of the Tax Reform 2.0 proposals. Baby Bonds are a highly promising policy proposal and there will be more to come from Prosperity Now on this later this year, so stay tuned.